Navigating Cryptocurrency Taxes: A Complete Guide for 2026
Cryptocurrency taxation has become a major IRS enforcement priority. With expanded reporting requirements and the IRS investing in blockchain analytics, understanding your crypto tax obligations is more important than ever.
The Basics: How Is Cryptocurrency Taxed?
The IRS treats cryptocurrency as property, not currency. Every transaction involving cryptocurrency is potentially a taxable event.
Taxable Events Include:
- Selling crypto for USD or fiat — Capital gain or loss
- Trading one crypto for another — Treated as selling the first
- Using crypto to purchase goods — Gain/loss recognized
- Receiving crypto as payment — Ordinary income at FMV
- Mining rewards — Ordinary income at FMV when received
- Staking rewards — Ordinary income at FMV when received
- Airdrops — Ordinary income at FMV
Non-Taxable Events:
- Buying crypto with USD
- Transferring between your own wallets
- Gifting crypto (gift tax rules may apply above $18,000)
- Donating crypto to charity
Capital Gains: Short-Term vs. Long-Term
- Short-term (held 1 year or less): Taxed at ordinary income rates (10%-37%)
- Long-term (held more than 1 year): Preferential rates of 0%, 15%, or 20%
Use our capital gains tax calculator to estimate your crypto tax liability.
HODL Strategy
Holding crypto over one year before selling can save dramatically. A taxpayer in the 32% bracket selling $50,000 in short-term gains owes $16,000. The same gain held long-term at 15% would be $7,500 — a savings of $8,500.
Cost Basis Methods
- FIFO (First In, First Out): Default method — first coins bought are first sold
- Specific Identification: Choose which coins to sell for maximum optimization
- HIFO (Highest In, First Out): Sell highest-cost coins first to minimize gains
DeFi, Staking, and Yield Farming
Staking Rewards
Considered ordinary income at fair market value when received. You must report even if you do not sell the tokens.
Liquidity Pools
Adding liquidity and receiving LP tokens may be a taxable exchange. Impermanent loss is a complex area. Document all transactions meticulously.
Wrapped Tokens
Wrapping tokens (e.g., ETH to WETH) may constitute a taxable exchange under current IRS interpretation. The safest approach is to report it.
NFT Taxation
- Creating and selling NFTs: Ordinary income minus production costs
- Buying and reselling: Capital gain or loss based on holding period
- Receiving as payment: Ordinary income at FMV
Certain NFTs may be classified as collectibles, subject to a maximum 28% long-term rate.
New Reporting: Form 1099-DA
Starting with the 2025 tax year, exchanges must issue Form 1099-DA reporting your transactions to both you and the IRS. However, DeFi transactions and self-custody wallet activity may not be reported. You must still report all taxable transactions regardless.
Tax-Loss Harvesting for Crypto
Unlike stocks, crypto is not currently subject to wash-sale rules. You can sell at a loss and immediately repurchase. However, legislation has been proposed to change this — monitor pending laws.
Record-Keeping Essentials
- Date and time of every transaction
- Type of transaction (buy, sell, trade, receive, send)
- Amount of crypto involved
- Fair market value at time of transaction
- Cost basis
- Fees paid
- Wallet addresses involved
Use crypto tax software like CoinTracker, Koinly, or TaxBit to aggregate transactions and generate IRS forms.
The IRS Is Watching
Every individual tax return now asks: "At any time during the year, did you receive, sell, send, exchange, or otherwise acquire any digital assets?" Answering "No" when you have had taxable transactions is a false statement on a federal return. Report accurately.